Why US Agri Protectionism is Subsidizing Brazil

Once again demonstrating that you don't have to look far for IPE-relevant material, here's something I found on the front page of Yahoo! I have covered the story of Brazil taking the US to the WTO over the latter's agricultural supports for cotton growers many, many times [1, 2, 3, 4]. As TIME nicely summarizes below, the WTO ruled in Brazil's favour and asked the US to remove the offending subsidies. However, instead of removing them, the US has continued them and arguably made them worse with the passage of the 2008 Farm Bill. And so Brazil has been entitled to apply retaliatory tariffs and skirt certain intellectual property provisions.

Since the US did not particularly like either sanction, it has come to a settlement where America pays Brazil a cool $147.3 million until the 2008 Farm Bill runs its course. Just think: the US is paying its growers fat subsidies...and those of Brazil too. Whether congresspersons will come to their senses when 2012 comes around (and the next Farm Bill is drawn up) is certainly an open question as they don't seem to have learned their lesson just yet:

By encouraging Americans to plant cotton even when prices are low, they promote overproduction and further depress prices. An Oxfam study found that removing them entirely would boost world prices about 10%, which would be especially helpful to the 20,000 subsistence cotton growers in Africa. In 2005 the WTO upheld a challenge that Brazil had filed against the cotton subsidies as well as some export-credit guarantees for all American farm products, but the U.S. essentially ignored the ruling.

So last August, the WTO gave Brazil the right to impose punitive tariffs and lift patent protections on $829 million worth of U.S. goods — including nonfarm products like cars, drugs, textiles, chemicals, electronics, movies and music. The retaliation was supposed to start Wednesday, April 7 [2010], and it would have driven home how our relentless coddling of farmers hurts other American exporters, paralyzing our efforts to open overseas markets to the nonfarm goods and services that make up 99% of our economy. But at the 11th hour, negotiators from the Office of the U.S. Trade Representative and the Agriculture Department reached a temporary deal with their Brazilian counterparts, so the retaliation is on hold.

The obvious solution, in an alternate universe, would have been for the U.S. to get rid of its improper subsidies. But the current farm bill does not expire until 2012, and the congressional agriculture committees don't want to mess with it because, well, they just don't [and offend important rural constituencies before the 2010 midterm elections]. Senate Agriculture Chairman Blanche Lincoln of Arkansas and ranking Republican Saxby Chambliss of Georgia on Wednesday praised both governments for finding an alternative solution and pledged to "explore modifications" in 2012. Maybe they will, but don't bet on it — cotton, after all, is not unheard of in Arkansas and Georgia.

The U.S. negotiators did agree to modify the complicated export-guarantee program to make it less of an export-subsidy program. They also agreed to ease restrictions on Brazilian beef that have been justified as an effort to protect Americans from foot-and-mouth disease — and criticized as an effort to protect U.S. cattlemen from competition. But the big-ticket item is the settlement's "technical assistance" fund of $147.3 million, prorated, for Brazilian cotton growers. That just happens to be the precise amount of the retaliation the WTO had approved for the improper cotton subsidies. According to the U.S. press release, the fund will be replenished every year "until passage of the next farm bill or a mutually agreed solution to the cotton dispute is reached." So the total cost will exceed the price tag of the infamous Alaskan bridge to nowhere, which was at least designed for Alaskans; the annual cost will far exceed the $100 million President Obama ordered his Cabinet to cut from the federal budget last year.